Major Tax Relief for Salaried Individuals: Standard Deduction Reinstated and Rebate Enhanced
The government has passed the Taxation Laws (Amendment) Bill, 2025, which corrects a previous drafting error and aligns tax provisions with the announcements made in Budget 2025. This amendment provides significant tax relief for salaried individuals under the new tax regime for the financial year 2025-26.
What’s Changed?
1. Standard Deduction Reinstated
The standard deduction for salaried taxpayers under the new tax regime is now ₹75,000. This corrects an omission that had previously prevented this benefit from being applied for the current financial year.
2. Enhanced Section 87A Rebate
The tax-free income limit under Section 87A has been raised from ₹7 lakh to ₹12 lakh. This change, along with an increased rebate cap of ₹60,000, means that individuals with a taxable income up to ₹12 lakh will pay no tax.
How it Benefits You
Thanks to these changes, a salaried individual with an annual income of ₹12.75 lakh can now effectively pay zero tax.
Here’s the breakdown:
- Gross Income: ₹12.75 lakh
- Less Standard Deduction: ₹75,000
- Taxable Income: ₹12.00 lakh
- Tax on ₹12 lakh: ₹60,000
- Less Section 87A Rebate: ₹60,000
- Net Tax Liability: ₹0
This combined benefit provides substantial relief, making the new tax regime more favorable for middle-income earners. It’s important to remember that this rebate does not apply to income taxed at special rates, such as short-term or long-term capital gains.